Amid the pandemic, when people were stuck at home, a new trend emerged among young investors – trading stocks from the comfort of their homes. It was like a secret world of financial opportunities that suddenly cropped up. And guess what? They weren’t alone in this adventure!
According to recent data, 25 million demat accounts were added in the 2022-23 financial year. That’s an average of over 2 million new accounts every month! The demat account frenzy peaked in May 2023, when a remarkable 2.1 million accounts were added in a single month.
If you’re considering jumping on the stock investment bandwagon, a Demat Account is a must-have. But hold on a second—what exactly is a Demat Account, and how does it work? Let’s break it down for you!
What is a Demat Account?
A Demat Account is an electronic account that is used to hold securities in digital form.
When you purchase shares of a company, they are credited to your demat account after the settlement. The account acts as a secure repository where stocks, exchange-traded funds, bonds, and other securities are maintained electronically.
The demat account is linked with a trading account that places buy and sell orders in the market. When shares are bought, funds move from the bank account through the trading account, and the securities are delivered into the demat account.
Full form of Demat Account
The full form of a demat account is ‘Dematerialised Account’. Here, the term ‘dematerialised’ refers to the conversion of physical share certificates into electronic form.
Earlier, the investors used to receive paper certificates as proof of ownership. But today, the shares are held digitally in a demat account, which eliminates the paperwork and reduces any chances of loss, theft, or damage.
Demat History
Demat accounts were introduced in India following the enactment of the Depositories Act, 1996, under the Securities and Exchange Board of India.
The first depository, National Securities Depository Limited, commenced operations in November 1996, making dematerialised trading operational from that period. Later, Central Depository Services Limited began its operations in 1999.
Over time, SEBI made trading in dematerialised form compulsory for most listed securities, and by the early 2000s, the physical share transfers were largely phased out, and demat accounts became effectively mandatory for equity market participation in India.
Features of a Demat account
A demat account serves as the foundation of investing, and its features are structured to ensure safety, efficiency, and transparency in holding securities.
- Electronic holding of securities: The shares, bonds, ETFs, and other securities are stored in digital form, while eliminating physical certificates.
- Safe and secure storage: The risks, such as theft, forgery, loss, or damage of physical documents, are removed.
- Easy transfer of ownership: The securities can be transferred electronically during sale, pledge, or transmission, which ensures faster settlement.
- Automatic credit of corporate benefits: Dividends, bonus shares, stock splits, and rights issues are directly credited to the account.
How does a Demat account work?
A Demat Account works as an electronic repository that holds financial securities in digital form and records changes in ownership after each transaction.
When an investor places a buy order through a trading account, the order is executed on the stock exchange, and after the settlement process, the purchased shares are credited to the investor’s demat account, reflecting legal ownership of the securities.
When the shares are sold, the demat account is debited, and the securities are transferred to the buyer’s account. Simultaneously, the sale proceeds are credited to the linked bank account.
Thus, the demat account functions in coordination with the trading account and a bank account. The trading account facilitates transactions, the bank account handles funds, and the demat account stores the securities, which ensures smooth, secure, and regulated market participation.
Documents required for a Demat account
To open a demat account, you will need to submit the following documents:
- Aadhar Card
- Pan Card
- IT Returns (minimum 2 years)
- Verified copy of the electricity bill
- ICAI, ICWAI, ICSI, Bar Council, etc., issued an identification card with a photograph
- Bank Attestation
- Passport-size photos
Types of Demat accounts
You can open different types of demat accounts as per share investment or securities. Some of these are:
- Regular demat accounts:
These accounts are for Indian citizens investing in shares and are dematerialised. Regular Demat accounts are best for Indian residents who deal in equity trading and investing.
- Repatriable demat accounts:
These types of Demat accounts are accessible to NRIs. A repatriable account enables you to move money abroad if you’re an NRI. You must link the respective account with a Non-resident External (NRE) bank account to repatriate your money.
- Non-Repatriable demat accounts:
You can open a non-repatriable account if you’re an NRI as well. Transferring money internationally is not possible with this kind of account. It must be connected to an NRO bank account, Non-resident Ordinary.
Benefits of a Demat account
There are multiple benefits of a demat account. Some of these are:
- No more paper certificates
In the past, companies used to issue shares in the form of paper certificates. So, if you are buying or investing in multiple company shares, you must file all share certificates or bonds. Such copies were prone to damage and loss and required time-consuming transfer procedures.
- Easy to store
Storing these certificates is simple because you can keep as many shares as possible in a demat account. You can manage your shares in your account and trade in volume this way. Additionally, you can use your Demat Account to quickly transfer shares.
- Easy to access
Your Demat Account is quite simple to access. You can access your shares using any device or from any location. Investing in a future with financial security is now easier and more accessible than ever, thanks to a demat account.
Demat account charges
Although a Demat account in India has easy features and benefits, it also comes with certain maintenance charges. For a regular Demat account having a balance of ₹50,000, you don’t have to pay any charges. Depending on your trades, those with assets worth ₹. 50.00 and ₹2 lakhs should pay somewhere between ₹100 and ₹750.
The annual cost can get as high as ₹2,000–2,500 when the transaction value surpasses ₹2 lakhs. A Demat account holder must pay the custodian an annual maintenance charge (AMC) in exchange for services.
These are also referred to as Folio maintenance costs, which can cost between ₹300 and ₹900 annually. To get a clear idea, let us consider the AMC for your demat account in Zerodha:
| Type of Account | Annual Charges | Quarterly Charges |
| Individual, HUF, and Partnership Firms | ₹300+18 GST | ₹75 + 18% GST |
| NRI | ₹500 + 18% GST | ₹125 + 18% GST |
| Corporates LLPs and Private & Public Companies | ₹1000 +18% GST | ₹250 + 18% GST |
| IL & FS Demat | ₹400 + 18% GST | ₹100 + 18% GST |
Conclusion
A demat account forms the structural base of modern securities trading in India. It enables investors to hold financial instruments in electronic form, ensures secure ownership records, and facilitates efficient settlement of transactions.
The transition from physical certificates to dematerialisation has enhanced transparency, reduced operational risks, and strengthened regulatory oversight. An understanding of its features, types, documentation, and charges supports informed and systematic participation in capital markets.
